CASE STUDY : Electron Control

CASE STUDY :

Electron Control, Inc., sells voltage regulators to other manufacturers, who then customize and distribute the products to quality assurance labs for their sensitive test equipment. The yearly volume of output is 15,000 units. The selling price and cost per unit are shown below:

Selling price $200
Costs:
Direct material $35
Direct labor 50
Variable overhead 25
Variable selling expenses 25
Fixed selling expenses 15 150
Unit profit before tax $ 50

Management is evaluating the alternative of performing the necessary customizing to allow Electron Control to sell its output directly to Q/A labs for $275 per unit. Although no added investment is required in productive facilities, additional processing costs are estimated as:

Direct labor $25 per unit
Variable overhead $15 per unit
Variable selling expenses $10 per unit
Fixed selling expenses $100,000 per year

 

Q1. Calculate the incremental profit Electron Control would earn by customizing its instruments and marketing directly to end users.

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